A couple of postings ago, I noted that I had attended the Theory and Practice of Patent Valuation
conference in Berkeley last Friday. As I mentioned in that post, the
conference seemed to be scattered, and I used that post to try to
rationalize the proceedings.

However, the biggest shortcoming of that conference wasn't its scattered
nature. After all, that nature describes the overall patent market
today. So the conference merely reflected the market in its current
state. No shame there.

Moreover, I suppose I can't slag the conference for missing the biggest
story of all in patent valuation. This is because the press release that
made this story the biggest one didn't come out until one week before
the conference, and did so without any fanfare. So, it's not surprising
that the conference missed it.

Nonetheless, there were some subtle hints of this biggest story at the
conference. Those subtle hints concerned the "swagger" of the patent
brokers during the conference. That is, the conference was filled with
very different kinds of players. Academics, expert witnesses, corporate
counsel, IP investment banks, etc. Brokers were just one species among
many.

But among all the species there, the brokers stood out in terms of their
confidence -- a confidence that bordered on arrogance. And I don't mean
just one or some of the brokers. I mean all of them. If a non-English
speaker had attended the conference, and thus hadn't understood any of
the words spoken, that person could still have picked up that, as a
class, the brokers carried themselves like "they got game".

Why? Is swagger and overabundant confidence merely a common personality
trait of all brokers? Perhaps. After all, "broker" is just a glorified
name for "sales guy". But I think that, beyond the familiar sales guy
bluster, there is a powerful reason justifying the demeanor of the
brokers at the conference.

That reason is found in a single paragraph, in a January 29
press release
(PDF)
issued by leading broker IPotential, LLC. In
this press release, among other information, IPotential announced that,
over its 5-year life, it has handled 137 patent transactions, bringing
in \$265,000,000. That works out to an average price per transaction of
\$1,934,307.

Now, keep in mind that these are not audited numbers. These are numbers
being put out by a private company. For all we know, these numbers could
just be ones that IPotential is pulling out of its ass. Still, we have
no reason to doubt these numbers. So let's proceed.

But since the swagger of both the Inflexion Point and Pluritas people
seemed to match that of the IPotential people at the conference last
Friday, I tentatively suspect that the numbers of these "silent" brokers
are closer to those of the "speaking" broker (IPotential), then to those
of Ocean Tomo, LLC.

Ocean Tomo owns and operates a well-known patent auction. These are live
auctions, held generally twice a year (Fall and Spring). Between 2006
and 2008, Ocean Tomo held six such live auctions. And it is kind enough
to post the results of these auctions on its web site.

Now while these results are not audited either, they are already public
in a way. This is because many people attend the live auctions, so many
are already aware of the prices that individual lots of patents are
going for at the auction, before Ocean Tomo announces those numbers on
its site.

The other reason I suspect that Ocean Tomo's numbers are accurate is
that they are so shitty in comparison with those put out by IPotential.
I mean, if Ocean Tomo was lying about its numbers, would't it lie a
little more beneficially to itself?

Anyway, on with the bloodbath. You can get the results of Ocean Tomo's
auctions from 2006-2008
here. Going through the
six Fall and Spring auctions for those three years, we find 224 patent
transactions going for a total of \$82,429,600. This computes to an
average price per transaction of\$367,989.

This means that, in selling patents, the broker IPotential is
(allegedly) getting a price per transaction that is OVER FIVE TIMES
what Ocean Tomo's auctions are getting.

That's not a typographical error. In fact, the truth might even be worse
than that for Ocean Tomo. Ocean Tomo's average is skewed by a single
\$16M+ transaction that is wildly beyond any other price fetched for the
224 transactions. If we drop this highest price and the lowest price
from Ocean Tomo's results, its average price drops to \$296,970, which
is 6.5 times less than IPotential's number.

What's going on here? This kind of difference in price is astounding.
This question should have been the story of the conference.

Well, since it wasn't, I'll try my hand at answering this question. As I
mentioned above, I suspect that the numbers for the other brokers are
closer to those of IPotential's than to Ocean Tomo's. In other words, I
think there is something systemic going on here.

Basically, I think the answer to this question came out of the
conference. As I mentioned a couple of posts ago, there seemed to be
general agreement among the brokers and corporate counsel that the most
important thing that brokers do in selling a patent is to create a
marketing package that features claim charts. Ocean Tomo doesn't do
this.

Why might claim charts account for the huge difference between the
numbers of brokers, and those of Ocean Tomo? I think the answer comes
from something IPotential CEO Ron
Epstein said at the
conference. He said that bidding was the key to getting value for a
patent owner, just as bidding is the key to value in all markets.